Health Spending Is Flattening Out

(Photo: presta) Washington - The growth of health spending has slowed substantially in the last few years, surprising experts and offering some fuel for optimism about the federal government’s long-term fiscal performance.

Much of the slowdown is because of the recession, and thus not unexpected, health experts say. But some of it seems to be attributable to changing behavior by consumers and providers of health care — meaning that the lower rates of growth might persist even as the economy picks up.

Because Medicare and Medicaid are two of the largest contributors to the country’s long-term debts, slower growth in health costs could reduce the pressure for enormous spending cuts or tax increases.

In 2009 and 2010, total nationwide health care spending grew less than 4 percent per year, the slowest annual pace in more than five decades, according to the latest numbers from the Centers for Medicaid and Medicare Services. After years of taking up a growing share of economic activity, health spending held steady in 2010, at 17.9 percent of the gross domestic product.

The growth rate mostly slowed as millions of Americans lost insurance coverage along with their jobs. Worried about job security, others may have feared taking time off work for doctor’s visits or surgical procedures, or skipped nonurgent care when money was tight.

Still, the slowdown was sharper than health economists expected, and a broad, bipartisan range of academics, hospital administrators and policy experts has started to wonder if what had seemed impossible might be happening — if doctors and patients have begun to change their behavior in ways that bend the so-called cost curve.

If so, it was happening just as the new health care law was coming into force, and before the Supreme Court could weigh in on it or the voters could pronounce their own verdict at the polls.

“The tectonic plates might be beginning to shift,” said Karen Davis, the president of the Commonwealth Fund, a nonprofit research group in New York. “It’s hard to believe everything that’s been tried over the last decade to slow spending wouldn’t be making a difference.”

Experts were surprised, for instance, at a drop in spending on some hospitalized seniors — people enrolled in Medicare, whose coverage the recession should not affect. They also noted that some of the states where health care spending slowed most rapidly were states that were not hit particularly badly by the recession, suggesting that other factors were at play.

“The recession just doesn’t account for the numbers we’re seeing,” said David Cutler, a Harvard health economist and former adviser to President Obama. “I think there’s much more going on.”

The implications of a bend in the cost curve would be enormous. Policy makers on both sides of the aisle see rising health care costs as the central threat to household budgets and the country’s fiscal health. If the growth in Medicare were to come down to a rate of only 1 percentage point a year faster than the economy’s growth, the projected long-term deficit would fall by more than one-third.

The growth of health costs slowed in the 1990s as health maintenance organizations became more popular. That played a role in both gains in household income — less money on employer-provided health benefits means more money for raises — and in budget surpluses, economists argue.

Some experts caution that there remains too little data to determine whether the current slowdown will become permanent, or whether it is merely a blip caused by the economy’s weakness.

“If there’s something else going on, we don’t know what it is yet,” said Gail Wilensky, a health economist who headed Medicare and Medicaid during the administration of President George Bush. “The most honest thing to say is that, one, the reduction in use is greater than the recession predicts; two, we don’t understand why yet; and, three, you’d be foolhardy to say that we can understand it.”

She argued that the unusual decline in not just income but also wealth during the recession might be one factor cutting down on use of the health care system.

But many other health experts say that there is just enough data to start detecting trends — even if the numbers remain murky, and the vast complexity of the national health care market puts definitive answers out of reach.

Many experts — and the Medicare and Medicaid center itself — point to the explosion of high-deductible plans, in which consumers have lower premiums but pay more out of pocket, as one main factor. The share of employees enrolled in high-deductible plans surged to 13 percent in 2011 from 3 percent in 2006, according to Mercer Consulting.

That means thousands of consumers with an incentive to think twice about heading to the doctor. One study by the RAND Corporation found that health spending among people who shifted into a high-deductible plan dropped 14 percent — though the study also found that enrollees cut back on some care that tended to save money in the long run, like vaccinations.

A second factor is a dearth of expensive, novel drugs coming onto the market, experts said, as well as growing pressure to use generics. “There just aren’t as many blockbusters,” said Professor Cutler, the Harvard economist.

Finally, and most important, health economists point to a shift toward accountable care, in which providers are paid for the quality of care, not the quantity.

There are about 164 “accountable organizations” in the United States, according to research by Leavitt Partners. Hundreds of other insurers and health systems have enacted some of the features of accountable care, like assigning specially trained nurse practitioners to patients with multiple chronic conditions to make sure they take their medications and to prevent hospitalizations.

Many health care experts said they believed that the shift toward publicizing medical error rates and encouraging accountable care seemed to be paying dividends — and that providers were making changes in anticipation of the health care overhaul, which further emphasize accountable care.

“In Massachusetts, we had a lot of political pressure to understand the growth in costs as unsustainable,” said Sandra Fenwick, the chief operating officer of Children’s Hospital Boston, which has put more than 100 reforms into effect, saving millions of dollars, in the past four years. “We had to figure out how we were going to be part of the solution, not part of the problem.”

Ms. Davis of the Commonwealth Fund said that “a lot of the big gains have come from keeping people out of the hospital and the emergency rooms.”

“Five or seven years ago, the private sector started rewarding providers that got their patients’ chronic conditions like diabetes and asthma under control,” Ms. Davis said. “That was couched as a quality-control measure, or putting an emphasis on chronic-disease care. But the direct result is going to be a reduction of hospitalization.”

Moreover, experts said not to discount the accountable-care revolution just because it remained small or because the changes implemented by the Obama health care law had not come into full effect yet.

“In the past, these slowdowns have occurred not just because of the direct effect of reforms, but because of greater attention to reforms changing provider and patient behavior,” said Mark B. McClellan, the economist and doctor who ran Medicare and Medicaid under President George W. Bush.

Of course, health care experts caution that there have been times when health care spending had slowed, only to start tracking back up again.

“If you asked me, ‘How confident are you that this is not just the recession?’ I’d say 75 percent,” said Professor Cutler of Harvard. But he said he was less confident that this trend would continue.

Health Spending Is Flattening Out

(Photo: presta) Washington - The growth of health spending has slowed substantially in the last few years, surprising experts and offering some fuel for optimism about the federal government’s long-term fiscal performance.

Much of the slowdown is because of the recession, and thus not unexpected, health experts say. But some of it seems to be attributable to changing behavior by consumers and providers of health care — meaning that the lower rates of growth might persist even as the economy picks up.

Because Medicare and Medicaid are two of the largest contributors to the country’s long-term debts, slower growth in health costs could reduce the pressure for enormous spending cuts or tax increases.

In 2009 and 2010, total nationwide health care spending grew less than 4 percent per year, the slowest annual pace in more than five decades, according to the latest numbers from the Centers for Medicaid and Medicare Services. After years of taking up a growing share of economic activity, health spending held steady in 2010, at 17.9 percent of the gross domestic product.

The growth rate mostly slowed as millions of Americans lost insurance coverage along with their jobs. Worried about job security, others may have feared taking time off work for doctor’s visits or surgical procedures, or skipped nonurgent care when money was tight.

Still, the slowdown was sharper than health economists expected, and a broad, bipartisan range of academics, hospital administrators and policy experts has started to wonder if what had seemed impossible might be happening — if doctors and patients have begun to change their behavior in ways that bend the so-called cost curve.

If so, it was happening just as the new health care law was coming into force, and before the Supreme Court could weigh in on it or the voters could pronounce their own verdict at the polls.

“The tectonic plates might be beginning to shift,” said Karen Davis, the president of the Commonwealth Fund, a nonprofit research group in New York. “It’s hard to believe everything that’s been tried over the last decade to slow spending wouldn’t be making a difference.”

Experts were surprised, for instance, at a drop in spending on some hospitalized seniors — people enrolled in Medicare, whose coverage the recession should not affect. They also noted that some of the states where health care spending slowed most rapidly were states that were not hit particularly badly by the recession, suggesting that other factors were at play.

“The recession just doesn’t account for the numbers we’re seeing,” said David Cutler, a Harvard health economist and former adviser to President Obama. “I think there’s much more going on.”

The implications of a bend in the cost curve would be enormous. Policy makers on both sides of the aisle see rising health care costs as the central threat to household budgets and the country’s fiscal health. If the growth in Medicare were to come down to a rate of only 1 percentage point a year faster than the economy’s growth, the projected long-term deficit would fall by more than one-third.

The growth of health costs slowed in the 1990s as health maintenance organizations became more popular. That played a role in both gains in household income — less money on employer-provided health benefits means more money for raises — and in budget surpluses, economists argue.

Some experts caution that there remains too little data to determine whether the current slowdown will become permanent, or whether it is merely a blip caused by the economy’s weakness.

“If there’s something else going on, we don’t know what it is yet,” said Gail Wilensky, a health economist who headed Medicare and Medicaid during the administration of President George Bush. “The most honest thing to say is that, one, the reduction in use is greater than the recession predicts; two, we don’t understand why yet; and, three, you’d be foolhardy to say that we can understand it.”

She argued that the unusual decline in not just income but also wealth during the recession might be one factor cutting down on use of the health care system.

But many other health experts say that there is just enough data to start detecting trends — even if the numbers remain murky, and the vast complexity of the national health care market puts definitive answers out of reach.

Many experts — and the Medicare and Medicaid center itself — point to the explosion of high-deductible plans, in which consumers have lower premiums but pay more out of pocket, as one main factor. The share of employees enrolled in high-deductible plans surged to 13 percent in 2011 from 3 percent in 2006, according to Mercer Consulting.

That means thousands of consumers with an incentive to think twice about heading to the doctor. One study by the RAND Corporation found that health spending among people who shifted into a high-deductible plan dropped 14 percent — though the study also found that enrollees cut back on some care that tended to save money in the long run, like vaccinations.

A second factor is a dearth of expensive, novel drugs coming onto the market, experts said, as well as growing pressure to use generics. “There just aren’t as many blockbusters,” said Professor Cutler, the Harvard economist.

Finally, and most important, health economists point to a shift toward accountable care, in which providers are paid for the quality of care, not the quantity.

There are about 164 “accountable organizations” in the United States, according to research by Leavitt Partners. Hundreds of other insurers and health systems have enacted some of the features of accountable care, like assigning specially trained nurse practitioners to patients with multiple chronic conditions to make sure they take their medications and to prevent hospitalizations.

Many health care experts said they believed that the shift toward publicizing medical error rates and encouraging accountable care seemed to be paying dividends — and that providers were making changes in anticipation of the health care overhaul, which further emphasize accountable care.

“In Massachusetts, we had a lot of political pressure to understand the growth in costs as unsustainable,” said Sandra Fenwick, the chief operating officer of Children’s Hospital Boston, which has put more than 100 reforms into effect, saving millions of dollars, in the past four years. “We had to figure out how we were going to be part of the solution, not part of the problem.”

Ms. Davis of the Commonwealth Fund said that “a lot of the big gains have come from keeping people out of the hospital and the emergency rooms.”

“Five or seven years ago, the private sector started rewarding providers that got their patients’ chronic conditions like diabetes and asthma under control,” Ms. Davis said. “That was couched as a quality-control measure, or putting an emphasis on chronic-disease care. But the direct result is going to be a reduction of hospitalization.”

Moreover, experts said not to discount the accountable-care revolution just because it remained small or because the changes implemented by the Obama health care law had not come into full effect yet.

“In the past, these slowdowns have occurred not just because of the direct effect of reforms, but because of greater attention to reforms changing provider and patient behavior,” said Mark B. McClellan, the economist and doctor who ran Medicare and Medicaid under President George W. Bush.

Of course, health care experts caution that there have been times when health care spending had slowed, only to start tracking back up again.

“If you asked me, ‘How confident are you that this is not just the recession?’ I’d say 75 percent,” said Professor Cutler of Harvard. But he said he was less confident that this trend would continue.